Thursday, January 07, 2016

For one thing, not all subsidies are created equal, and the government actually has a good track record in promoting new energy technologies. New developments often face two market gaps that can potentially delay or even kill them: the “technological valley of death,” in which promising advances hit a technical brick wall, and the “commercialization valley of death,” in which an effective technology can’t get to market. Government research labs and subsidies have supported a number of forms of energy — from nuclear energy, to hydraulic fracturing, to photovoltaic solar — through these troughs.

And there’s nothing unique about the government’s support for solar. According to the Congressional Research Service, total government support for the oil and gas sector over the years dwarfs the amount of support for the solar industry.

Furthermore, the solar investment tax credit is pretty smart. It’s structured so that as solar power becomes more efficient, the effect of the credit on each watt produced becomes smaller. Ideally, we would let markets decide the winners on their own, but so long as government is intervening in markets, it should do so in an evenhanded way. Similarly, any government support for the solar industry should be impartial, rather than having government bureaucracy pick and choose favored companies as it does through its loan guarantee program. The solar investment tax credit comes close to that ideal.